Berko: Health care profits will rocket

What is your opinion of Tenet Healthcare Corp. today? I emailed you about this stock last November, and you said it was a “smart speculation.” So I bought 300 shares at $23 and have more than doubled my money. Do you think I should sell and take a good profit? I know I got lucky with this in a short period of time. Are there any other good health care stocks that you would recommend? Where would you put money for the greatest return in the next year? My Merrill Lynch broker thinks I should sell Tenet.

J.D., Wilmington, N.C.

Dear J.D.:

Methinks that profit has spoiled you too quickly. My November email to you about Tenet Healthcare (THC-$40.16) was a no-brainer. After the passage of the Patient Protection and Affordable Care Act, medical services issues glowed as traders, arbitrageurs, venture capitalists, investment bangsters, underwriters, hedge funds and brokers went bananas fantasizing about cotton-candy earnings and sugarplum profits. The euphoria wore off, and a few months later, health care investors dialed back their excitement for a while. But in 2014, when Americans begin to demand their entitlements, our health care system will inexorably morph into a visceral nightmare of fraud and deceit, encouraged by wondrous mountains of government dollars for all who play the game. The surge in costs and demand will be epochal. Hospitals, dialysis centers, urgent care facilities, day surgery centers, behavioral health centers, drug companies, health benefit insurers, physician practices, etc. will become molten-hot profit machines, and dollars will flow like lava. When services are provided at no cost to voters who believe health care is a government responsibility, the demand and the money to satisfy that demand will rise exponentially. And wow, watch those profits rocket! Wise observers believe that in a dozen years, medical costs will triple, forcing the national debt to reach $35 trillion by 2026.

Though you won’t enjoy humongous perks as a CEO or an officer of a health care company or get a monthly million-dollar paycheck or live in a $40 million manse, own a mega-yacht or have a platinum retirement plan, you still could make big bucks with a portfolio of health care stocks. The ensuing graft, corruption and rivers of profits flowing from the Affordable Care Act will be awesome. And you can get your share with a portfolio of selected health care stocks. I used to think the Department of Defense was a honey pot, but you ain’t seen nothing yet. The health care business will become the nation’s biggest boondoggle by orders of magnitude.

Don’t sell your THC, which owns 50 acute care hospitals with 13,500 beds in 10 states. THC always has been a poorly run company. Its revenues are lower today, at $9.6 billion, than they were in 2003, when they were $13 billion. In 2003, THC lost $11 a share, and the stock traded at $210. In 2004, THC lost $22 a share and traded in the high $70s. Certainly, THC has very powerful friends in Congress. Now THC is beginning to turn the corner. The Street thinks earnings for 2013 can come in at $2.65 per share, and earnings for 2014 could be $4. If THC earns $5.25 next year, the shares could trade above the $100 mark again.

Meanwhile, UnitedHealth Group Inc. (UNH-$62.75), Healthways Inc. (HWAY-$11.53), DaVita HealthCare Partners Inc. (DVA-$126.51), Community Health Systems Inc. (CYH-$42.42), HCA Holdings Inc. (HCA-$37.72), Quest Diagnostics Inc. (DGX-$58.52), Universal Health Services Inc. (UHS-$61.08) and Cerner Corp. (CERN-$94.07.) are other issues that could outperform the market. I recommend each of those companies because they all have special friends in Congress to whom they’ve made significant campaign (and otherwise) contributions.

However, you might be more comfortable owning a health care mutual fund, such as T. Rowe Price Health Sciences Fund (PRHSX-$47.65), which I’ve recommended in the past. During the past 10 years, PRHSX has given investors one-, three-, five- and 10-year returns of 31.9 percent, 10.4 percent, 10 percent and 14.25 percent, respectively. Your broker won’t recommend PRHSX, because it’s a no-load, but it may be the best health care mutual fund you can buy.